Hello, and welcome everyone to the Diageo PLC Fiscal 2026 Q3 trading statement. My name is Lucy, and I'll be coordinating the call today. I will now hand you over to Sonya Ghobrial to begin. Sonya, please go ahead when you're ready.
Thanks, Lucy. Good morning, everyone. Welcome to Diageo's Fiscal 2026 Q3 trading statement call. I'm Sonya Ghobrial, Head of Investor Relations, and I'm joined this morning by Sir Dave Lewis, Chief Executive Officer, and Nik Jhangiani, Chief Financial Officer. Just a quick reminder for those on the call that in the discussions today, the company may make certain forward-looking statements, including those that refer to our estimates, plans, and expectations. Please refer to this morning's release for more detail, including factors that could lead to actual results to materially differ from those expressed in or implied by any such forward-looking statements. Hopefully, you've all seen this morning's press release, which can be found on our website. For those listening who'd like to ask a question, please use the dial-in details included in today's press release.
If I could ask if you could limit to one question per analyst, we can hopefully get round to everyone. First, let me hand over to Dave for some brief opening remarks.
Sonya, thank you very much indeed. Good morning, everybody, and thank you for joining us today. I'm joining the call from the U.S. Sonya and Nik are in the office in London. Before I pass over to Nik to take us through the trading update, thought I'd say a word about the upcoming Capital Markets Day. You would have seen in the release that we're intending to hold the Capital Markets Day on the 6th of August in the office in London. The work on the strategy update is progressing well, as is the redesign of the operating framework. There's lots of work for us still to do, but we're confident that we'll have that complete and ready to share with you on the 6th.
The plan at the moment is in the morning, we'll do a short full year trading update, and then in the afternoon, invite you into the Diageo HQ and share with you that strategy update and any of the redesign of the operating framework. With that, Nik, I'm gonna hand over to you for the Q3 trading update.
Great. Thanks, Dave, good morning, everyone. Thank you all for joining us today. I'll walk through our results for fiscal Q3 of 2026. Dave and I will answer any questions you might have. Let me start with a quick overview of the top line trends. In the quarter, organic net sales were up 0.3%, driven by volume growth of 0.4%. We saw strong growth in Europe, LAC, and Africa, all up at least high single digits, aided in part by the timing of Easter and sales into the trade as they get ready for the upcoming FIFA World Cup, particularly in LAC. In North America, organic net sales declined high single digits, reflecting continued U.S. spirits weakness.
Asia-Pacific net sales declined slightly, with weakness in Chinese white spirits, offsetting low single-digit growth in international premium spirits and some benefit in the region from the later timing of Chinese New Year. Our progress towards increasing financial flexibility and strengthening our balance sheet continues. We saw continued momentum with our Accelerate program and are on track to deliver circa $300 million of savings by the end of fiscal 2026. The announcement in March of USL's sale of its Royal Challengers Bengaluru cricket club, as well as the expected completion in the second half of calendar 2026 of the disposal of our EABL shareholding in Africa, will support our focus on deleveraging. Our guidance for fiscal 2026 is unchanged from what we shared in February at the half-year results. Moving to reported net sales.
This was up 2.3% with a notable impact from a positive hyperinflation adjustment, which was partially offset by the negative impact of disposals including Guinness Nigeria and Guinness Ghana Breweries and the limited impact from foreign exchange. As indicated earlier, organic net sales growth of 0.3% comprised of positive organic volume growth of 0.4% and slightly negative price mix. Notably, price mix was largely positive across all regions, with the exception of U.S. spirits and Africa. Getting into some detail on net sales across the regions. In North America, organic net sales declined 9.4% as a result of soft market conditions and the need for a more competitive offer. This decline was largely due to U.S. spirits down 15.4%, weaker than depletions decline by circa 5%.
As Dave communicated in our press release, actions are already underway to address this. Although NAM price increase increased by 0.5%, this was driven by a one-off item in Canada relating to a favorable resolution of a commercial terms agreement with our largest customer. Our underlying NAM price mix was negative, largely due to adverse U.S. spirits mix. U.S. spirits net sales were impacted by lapping tough comps last year due to the pre-tariff pull forward of imports to distributors as well as tequila restocking. We did, however, also see some shipments benefit from distributor buy-in ahead of FIFA World Cup. Tequila declined double digits driven by tough comps from prior year, competitive pressure, and continued category softness.
Diageo Beer Company net sales grew 9.1%, led by both Smirnoff RTDs and Guinness, which continued to perform strongly. Europe saw a positive impact from Easter timing, growing organic net sales 8.8%. Of note, the continued strength of Guinness in Great Britain and Ireland, and good performance across spirits, which was led by MENA, Central and Eastern Europe and Turkey. Asia Pacific organic net sales declined 0.8%, driven by weakness in Greater China, with some performance benefit from the later timing of Chinese New Year, as I indicated earlier. In Greater China, Chinese white spirits declined just over 20%, reflecting reduced consumption, primarily due to market policy, impacting the region's net sales by circa 3% and group net sales by 0.6%. India was impacted by the Maharashtra excise tax increase.
Excluding Maharashtra, India grew high single digits. LAC also benefited in the quarter from the buy-in ahead of the FIFA World Cup, as well as Easter timing to deliver organic net sales of 16.2%. Scotch performed well across multiple markets, and Brazil led the growth of RTDs. Finally, Africa delivered solid 17.1% organic net sales, with double-digit growth in both East Africa and Southwest and Central Africa. Innovation with Kenya Cane was also a positive contributor, as was Mainstay in South Africa. Moving to our outlook for 2026, we reiterated our fiscal 2026 guidance shared with H1 results, namely for organic net sales down 2%-3% and for organic profit growth flat to up low single digits.
We continue to expect free cash flow of circa $3 billion after exceptionals related to the Accelerate program, but before an approximately $100 million one-off adjustment for inventory build at year-end to cover implementation of the S/4HANA ERP system at the start of fiscal 2027. The other financial guidance for fiscal 2026, which is also unchanged, can be found in the appendix of the slides. As Dave said in today's release, we're mindful of continued geopolitical uncertainty, including the impact of the ongoing conflict in the Middle East on energy, supply, and distribution. As you would expect, we continue to monitor developments here, and we will ensure that we do the right thing to protect our business and build further resilience for 2027. This could include the buildup of additional inventory through advanced production and shipment of business-critical SKUs.
Finally, whilst we welcome the news on Scotch and tariffs, this will likely have minimal impact, if any, on fiscal 2026 and is more relevant to the next year. With that, let me hand back to the operator to open the line for your questions. Thank you. Operator?
Thank you. The first question today comes from Simon Hales of Citi. Your line is now open. Please go ahead.
Thank you. Morning, Sonya, Dave, and Nik. I wonder if you could talk a little bit more about some of the actions you've been taking perhaps since the H1 results when we last properly met to put the group on a firmer footing, especially perhaps in the U.S. I mean, you say in the statement, Dave, that you've made moves to make the business more competitive, and those moves are underway. Where have you taken perhaps further price reposition action on Casamigos in recent months? Is there any early data on the consumer response to those moves that you can share with us at all, please?
Sure. I mean, I think if you look at it's very much in line with what we've been referring to, which is really being able to continue testing the elasticities on Casamigos. As we had indicated to you, we had already initiated some of that work in Florida with positive results. Across a number of the states, particularly where we want to be able to test this through the cities in which the World Cup will be taking place, we're initiating actions there as well. The early results are clearly positive. We will continue to monitor that. Remember, these take some time before they show up on shelf, but we will continue to monitor those as we go forward.
I think the other piece would continue to be around how do we also look at the entry point tequila of Astral, and how do we also ensure that we've got the right price tiering with Don Julio as we bring the Casamigos pricing more in line as well. A number of moving parts, but one that we feel is the right approach to give us some good early indications, and you'll see much more of that continue into 2027. Dave Lewis, I don't know if you wanna add anything onto that.
No, Nik, I think that's right. I think we said at the half year that we knew that it would take us a little bit more time to have the impact in North America that we wanted to. Where we can be surgical, we've been surgical, and Nik's talked about that mainly around Casamigos and the World Cup. I think there's a deep piece of work going on to understand the underlying competitiveness of the business, and that we'll share that with you when we update the strategy.
Brilliant. Thank you.
Thank you. The next question comes from Celine Pannuti of JP Morgan. Your line is now open. Please go ahead.
Thank you. Good morning. My question is on the outlook, obviously Q3 has come with better than expected results, but as well with some moving parts, including Easter, you mentioned that, Nik, FIFA. I don't know whether there were some selling as well in Middle East. Is it possible to have an aggregate view of or value of what the impact has been on Q3 and what you are backing for Q4 when you decided to reiterate the outlook? Maybe my question is underlying performance. It seems that the U.S., you are still seeing challenging market.
Outside of the U.S., do you think that the overall momentum in the market has been better, and, you know, whether that as well could have a bearing on Q4 performance? Thank you.
Yeah. Celine, listen, obviously a lot of moving parts, so I'm not gonna quantify, you know, what that phasing impact is. Clearly you can see that with our reiteration of the guidance that we feel strong about the continued momentum as we've said in Europe, LAC, Africa, where the underlying fundamentals outside of the lapping issues and all the phasing issues continue to be strong. I think this is a continuation of what you've seen through the first half as well. Clearly U.S., more challenged, and as I think Dave just mentioned as well, we will reveal a lot more beyond just Casamigos and tequila in terms of how we're thinking about a U.S. market positioning with a more competitive offer as we look forward, and more of that will come in August.
Listen, I think the positive is we're still trying to manage what we can manage and control within the U.S., and I think the call-out I would make to you, which is a continuation of what I had said at the half year, our depletions are tracking ahead of, you know, what we're trying to do with net sales. We're also trying to make sure that we're managing our inventory levels into distributor. Obviously, clearly, the outsell from retail is a little more challenging given the softer consumer environment, but one that we will continue to monitor. Overall, I think we're continuing to see good momentum, as I said, in the rest of the world.
Chinese white spirits, you know, you will see that normalization just given what we'll be lapping as we look forward, and U.S. we'll continue to talk about, you know, a more competitive strategy, when we update you in August.
Thank you.
Thank you. The next question comes from Mitch Collett of Deutsche Bank. Your line is now open. Please go ahead.
Thanks. Good morning. Just a quick one on the factors that would see you land towards the top or bottom of the range for guidance, both on sales and operating profit, given I guess you've got one quarter to go on organic sales and obviously a whole half for operating profit. What are the sort of factors you're looking at that would see you land towards the top or bottom end of your guidance range? Thank you.
Yeah, Mitch. I mean, I think if you step back, it's kind of unchanged from what we had talked about, right? We had talked about the fact that we had good Guinness capacity coming on stream. You're seeing that in terms of what is continuing to play out in terms of the strong performance into Q3, and that will continue into Q4 as well. I think FIFA World Cup is critically important.
I think as Dave has mentioned before, this is the first time a spirits, you know, producer is really supporting this, and we wanna make sure that we've got the right plans in place across North America and LAC, but also rest of world because, you know, I think this is after a while you're seeing, 2014, I think, was the last time in Brazil where you had the matches being aired during this period of time, and with the time zone differences. Clearly, you know, I think that would be another element that we would be tracking that could have an impact on, you know, the performance and on the top line.
From a profit perspective, I think, you know, as we've indicated, the Accelerate savings continue to support, and if we continue to see positive mix coming through, particularly from some of the LAC and NAM activations on FIFA, that will clearly have an impact as well. I think more importantly, you know, let's just step back and say, you know, we feel good about our ability to deliver against the guidance that we've indicated.
Thank you.
Thank you. The next question comes from Sanjeet Aujla of UBS. Your line is now open. Please go ahead.
Hi. Morning, Dave, Nik, and Sonya. Just going back to the U.S., where are inventory levels versus where you'd like them to be at the end of the quarter? Should we think about that shipment versus depletion gap widening, as we go into Q4, or is that what's embedded in the guidance?
I would say to you, Sanjeet, when you look at it, I mean, clearly if you remember, even through half one, our depletions were tracking ahead of shipments. You can see that gap actually having increased back to what we had said. We wanna ensure that we end the year with the appropriate levels of inventory in trade. Again, we can't manage obviously the full sell out through retail. I think you would expect to see that similar level that's been baked into our full year guidance.
Got it. Thanks.
Thank you. The next question comes from Edward Mundy of Jefferies. Your line is now open. Please go ahead.
Morning, Dave, Nick, and Sonya. I appreciate we'll probably have to wait until August for a bit more detail, but I'd just like to pick up with a comment around sort of deep work going on around the underlying competitiveness of the business. Is that a reference to some of the initiatives that you're taking on the portfolio architecture, execution, you know, broadening, you know, parts of the industry you're not currently, you know, playing in, or is that more a comment around, you know, making the business more efficient?
The nub of my question is, if part of what you're trying to do will require more reinvestment, will additional savings be able to offset that potential reinvestment, or will one, you know, be greater than the other, when you think about the scale of those two things?
Thank you, Edward. Look, you know, to answer all of those questions, we wouldn't need to have the Capital Markets Day. Look, the way that we think about this, Edward, is we're taking a step back. We're taking a step back across the world and looked at all of the regions and all of the categories, and we've asked ourselves some pretty fundamental questions about what's driving competitiveness in each and every one of those categories and each and every one of those regions. It's a quite a fundamental piece of work that's, you know, starts, as it should do, with the consumer, looks at the capabilities of the organization, looks at the portfolio.
Look, we gave you some indication of what the short-term priorities are in terms of sort of relevant brand and competitive category strategies, a different approach to how we think about customers, and yes, looking at the operating framework to see if we could be more effective and competitive. That work is very much underway. Shared increasingly internally, tested internally. We'll be ready to share that with you in August on the 6th. The detailed answers to your questions, I will, you know, we will attempt to give that to you then, but the work is not complete, so not in a position to give you any more guidance than I'm giving at this point.
Understood. Thank you.
Thank you.
Thank you. The next question comes from Olivier Nicolai of Goldman Sachs. Your line is now open. Please go ahead.
Hi. Good morning, Dave, Nik, and Sonya. First on Mexico, just wanted to clarify something that you put in the press release. Could you give us a bit of an update on the strategy and when you would expect things to turn around? Looks like Mexico was a drag on price mix in the region and sales decline in Q3. Secondly, since the last result, you've put John O'Keeffe in charge of the U.S. Could you give us a bit more detail on his mandate and the key KPIs? Thank you.
Nik, why don't you take Mexico.
Sure.
North America.
You know, as you rightly call out, I think Mexico continues to see a more you know, cautious consumer, both from a sentiment perspective and their disposable income, which is clearly impacting the performance in Q3. Half one was helped by some easier comps, if you go back to what we had indicated, but this wasn't the case in Q3. I think if you look at it from an angle of what we've been indicating, we need to have some price repositioning to ensure that we've got a more competitive offering, and this goes back to what we've been, Dave has talked about, I've talked about.
In particular, one example that we've talked about in Mexico is really what we need to be doing with Don Julio Blanco to be playing in what is a large, you know, top line and profit pool at the right price points, which will both enable recruitment but also help us then up the ladder from a premiumization perspective as we build that brand equity. I think as we've been doing that, clearly we see a encouraging set of share trends. There will be some lag before you see the full results, but I think what we're seeing from a share perspective in particular is encouraging and we'll continue to monitor that and provide you some more color on that, both at the half, at the full year.
As well as Dave said, you know, with that broader, work that's undergoing across all regions from an angle of our offering, our competitiveness, and where we have the right to win. More to come on that. Dave, I'll hand over to you for the U.S.
Thanks. Indeed. Thank you, Nik. We've talked already that North America is a softer market, and there's much for us to do in North America. In conversations with Sally, we mutually agreed it was a good time for us to make a change. I put on record our appreciation for everything that Sally has done for Diageo in her time with us. In nominating John, we take one of Diageo's most experienced spirits executives into our largest region, and his brief is exactly as I've articulated ours to you, which is to step back and have a full evaluation of our competitiveness, our capabilities within that North American operation. He's been an intrinsic part of the strategy exercise that's ongoing.
His remit is to step back and advise and guide us in terms of how it is we can improve the competitiveness in North America. As Nik says, we'll share the details or some of the details of that when we meet you in August.
Thank you.
Thank you. The next question comes from Richard Withagen of Kepler Cheuvreux. Your line is now open. Please go ahead.
Yeah. Good morning, Dave, Nik and Sonya. A question on the World Cup. This is a bit of a, you know, a first for you in terms of activation and so on. I think you've selected a couple of brands to focus on specifically. Can you sort of describe what are your longer term benefits that you expect from the FIFA World Cup activation, please?
Do you wanna go Nik, or shall I?
Well, why don't you start and I'll add in at the end.
Look, Richard, it's the first time there's ever been a spirit sponsor of the World Cup, right? It's not been done before. In that sense, we're all gonna learn something. I think Look, having been involved in, intimately in the plans in Latin America, I think the relationship of football, our brands and all of the occasions that go with that feels like a very strong link. We'll look at it in terms of the impact both on brand equity and obviously brand sales. I think in North America, let's be honest, it's gonna be a learning curve. We'll see how the World Cup goes in North America. The build up to it, as I say, I'm in the U.S. here, and I reviewed something yesterday, the build up to the World Cup seems strong.
We don't know. There is no history in terms of how the brands will respond to activation. We'll use the usual metrics in terms of impact on the brand equity and also the impact on both short term and sort of medium long term sales. North America, I think is probably going to be a bit more of a voyage of discovery. I think we probably feel more confident in the reaction in Latin America, given what we know about the passion for football that exists in that part of the world.
Thank you.
Thank you. The next question comes from Sarah Simon of Morgan Stanley. Your line is now open. Please go ahead.
Yes. Good morning all. Just a quick one on the Canada commercial dispute. Is it right to assume that that will all drop to the bottom line? 'Cause I think there's no volume, it's just a kind of refund or something. Was that kind of included? Did you know that was coming when you gave guidance at H1? Thanks.
To your point on, does it all just drop to the bottom line? Technically yes, but having said that, we also, coming back to the point around wanting to ensure that we're taking advantage of where we have some opportunities to invest in advance, where we feel that we can get a good payback, we would look at that. We're looking at it in the aggregate of what makes sense for the business as we look forward. That's where that is. Did we know that was coming? You know, obviously we track what the position might be, so we couldn't say with certainty where it was. As I said, more importantly, it gives us some more opportunity to look at potential investment with some returns as we go into Q4.
Great. Thanks.
Thank you. The next question comes from Chris Pitcher of Rothschild & Co. Your line is now open. Please go ahead.
Good morning all. Can I just quickly follow up on Sarah's question, then ask mine. I mean, in terms of quantifying the Canada benefit, you talked about price mix in North America being negative without it. I can't see any reason why the price mix in the first half would've improved, which would indicate it could be a GBP 50 million-GBP 60 million benefit. I believe you had agreed with the LCBO or with Ontario to increase spending in the province. It sounds like it could almost cover off that. Can I just clarify that? Secondly, or the question, on U.S. beer, we've seen improving momentum in the U.S. beer market and your beer business improved. Was there anything in that acceleration in the U.S. that was technical or phasing, or are you seeing increasing momentum across both Guinness and Smirnoff?
To the last question, yes, we are seeing increasing momentum, and part of this is very much back to what we had talked about when we talked about second half, where we're focused a lot more on RTDs, and we'd indicated that would be happening. Positively we are seeing that coming through. Guinness, both from an angle of continued, you know, deep cultural relevance even in the U.S. as we're building out our Guinness brand, as well as more capacity that's allowing us to supply more, is supporting that. Nothing technical outside of continued momentum on that. From an angle of the question on the Canada piece, no, it's not that high. I wouldn't give you an absolute number. It is definitely a lot lower than what you're referring to.
Yes, there was negative price mix, U.S. spirits. I would say, you know, that's kind of what we've indicated with really the mix coming through from the spirits weakness as well as the category down trading within that space.
Thanks for the clarification. Cheers.
Thank you. The next question comes from Trevor Stirling of Bernstein. Your line is now open. Please go ahead.
Good morning, Dave, Nik and Sonya. Just one question from my side, please. You, this may be one we have to wait until August, Dave. You talked in February about RTDs, and there has been press reports about an increased focus on RTDs being one element of the strategy. I wonder if there's any kind of, sorry, color you can give us ahead of August?
Trevor, I suppose the short answer is no, really. I think we stay with the position which is, we consider RTDs to be a growth opportunity. I think we would readily accept that we've been perhaps a little slow in addressing that opportunity. There's plans in place now. There will be even more plans in place as we go forward. Trevor, I suspect as we go between here and December, just given the nature of where the business has been, there'll always be, I think, little stories that will pop out into the U.K. press. It's not going to be my intention to respond to each and every rumor that gets out there. That's not going to be helpful to anybody.
I think also, you know, we'll be sensitive as we go forward about anything that we would consider to be competitively sensitive. I'm not gonna comment as we go through on any particular brand plan. That wouldn't be I don't think that would be appropriate or helpful even to Diageo investors. We will give you a strategic overview, and some real clarity when we see you in August.
Understood. Thank you very much.
Thanks, Trevor.
Thank you. The last question today is from Andrea Pistacchi of Bank of America. Your line is now open. Please go ahead.
Thank you very much. Question on Europe, where you had a strong quarter. I think even netting out the phasing effects, the performance remains very solid. Now, beer is the key driver there, but just interested in your assessment of the situation from your, from Diageo perspective on spirits in Europe and also how you see the competitiveness of your brands there, which tend to be a bit more mainstream than they are in the U.S. Thank you.
Listen, I think clearly as you've seen, the momentum on Guinness, particularly in Great Britain and Ireland, continues strongly. I would also say, with some of the broader portfolio play, Dave talked about that with MENA. I think we've also taken some actions in Great Britain, as well as some of the other European markets. We're playing in a broader portfolio, at the right price points, at the right price positioning on shelf to be competitive, as well as support our customers.
A lot more work to do, but you're already seeing the early signs of that coming through, which is a positive and I think, we'll provide you, as Dave said, more color on that across all the regions as we think about our competitiveness, our category and brand strategy, and how we wanna work with our customers, you know, to be able to drive a shared, growth agenda and drive value for them and for us. Some more to come on that. You know, I think Scotch, tequila, vodka, you know, I think we're doing the right things as we think about a broader, portfolio play across the region, in addition, obviously, to Guinness.
Thank you.
Thank you. This concludes the Q&A session. I'd like to hand back to Dave for closing remarks.
Thank you very much indeed. Thank you everybody for joining us and for your questions. I suppose the way that I would sum up is, look, there's some real encouragement in a number of areas. We've been able to make interventions in parts of the group and see responses quite quickly. We know that in North America that that was going to take longer, and we consider that that will still be the case. I'm particularly encouraged by the way that the team, the whole of the Diageo team, is engaging in the strategic refresh and the rethinking around how it is we can be more competitive and effective as an organization. We'll share that with you in some detail when we meet in August.
I think when, half year we said by the end of the summer, we hope that by bringing it forward to the 6th of August we'll complete all of your questions before you head off for your summer holiday. With that, I thank you again for your time and your support, and we'll see you in August.